The Pharmaceutical/Life Sciences Industries are undergoing a profound change. As the business goes more towards a bottom line management focus, savings from consulting, outsourcing (globalization) and outside technical services become more important. This Blog is focused on serving the interests of those industry clients, investors and their suppliers. We will discuss issues related to the politics, finance and technology and their impact on the industry.

Friday, May 29, 2009

We welcome a new author to our blog, Dr. Joel Studebaker who discusses an issue that is certain to have an impact on the entire Life Sciences Industry assuming the Obama administration is able to get this legislation passed. Joel's biography is appended the end of this article.

Comparative Effectiveness Research:

The $1.1 billion in funding for comparative effectiveness research (CER) in the federal stimulus plan has considerable significance for the pharmaceutical and medical device industries. This funding will support studies of the effectiveness of alternative therapies – pharmaceutical, device, or medical procedure – for particular medical conditions. The studies will focus on outcomes like improvements in patient status or adverse effects but they will not currently consider the costs of treatment. Proponents of CER assert that it provides opportunities to control health care costs without sacrificing quality and to give physicians systematic, unbiased data about outcomes for competing therapies. Opponents believe the results will determine which therapies receive reimbursement from government and private insurance and thus effectively dictate medical decisions to physicians. In addition, there is concern that CER studies may lead to studies that do consider cost, with the result that treatments that are effective but relatively expensive will not qualify for reimbursement. In the United Kingdom, the effectiveness studies of the National Institute for Health (NIH) and Clinical Excellence (NICE) currently take cost into account.

Clinical trials represent the most rigorous approach to CER, and pharmaceutical companies sometimes publish the results of trials demonstrating that their products produce better outcomes than competing alternatives. The expense of clinical trials limits the number of patients they can include and the length of time they can cover, however. A second approach is to compare the reported results of clinical trials of products aimed at the same clinical condition. The major challenges in this approach are that different studies may use different methods and significantly different patient populations. A third approach is to analyze data available in medical and pharmacy claims. The data in medical claims submitted to insurers, managed care organizations, and government programs includes codes identifying the patient’s diagnoses, the procedures carried out, and the provider for each claim. Pharmacy claims submitted to pharmacy benefit managers provide data on drugs a patient is taking. Some private plans and government programs cover millions of members, and thus they have data on larger populations than a clinical trial can enroll. When membership in these programs is relatively stable over time, it’s possible to study long term effects. Large populations also make it possible to study sub-populations, preserving a measure of personalized medicine in CER.

Referring to studies based on claim records, a 2007 paper from the Congressional Budget Office noted that “A central difficulty in such studies, however, is accounting for the differences in patients’ health status that play a role in determining which treatment they get… Insurance claims typically do not include any information about health status.” To overcome this difficulty, one may use a software package that classifies individuals by health status on the basis of their claims. One should recognize, however, that there are limitations to using claims for CER. Unlike a clinical trial, a study of claim data lacks demographic data beyond age and gender, results from laboratory tests (though diagnoses may reflect laboratory results), or medical charts. Precedents for using claim data in comparative research include a Lilly study of cost effectiveness for the antipsychotic olanzapine and a Pfizer study comparing patients taking Lipitor® to patients taking Merck’s Zocor.

Currently, it’s not clear what new insights future CER activity will produce or what impact they will have on health care. It is possible that a body similar to NICE will come into existence in the US or that the FDA will begin to consider CER comparing products submitted for approval to products already on the market. One observer has suggested that CER results may eventually be the only way for a particular product to succeed in the marketplace in competition with less expensive alternatives.

Dr. Joel Studebaker's – Biography

After finishing graduate school, Joel Studebaker began his career at the IBM Watson Research Center in Yorktown Heights, NY. He then moved to IBM Biomedical Systems, a small division that made centrifuges for separating blood into components, where he established the laboratory for chemistry and hematology. After IBM sold that division, he worked on an IBM project at Princeton University for three years and then worked with Larry Rothman at the IBM Engineering/Scientific support center and the Pharmaceutical Industry Center.

Since leaving IBM in 1992, he has worked as a developer and project manager in databases and software development for several small systems integration firms. His pharmaceutical/biotech experience has included two tours of duty with the American Red Cross Blood Banks, an assignment managing the discovery software support group at J&J PRD in Raritan, NJ, and a position as Associate Director of Informatics at Orchid BioSciences. More recently, he has worked in medical and pharmacy claim analysis at CareAdvantage and Integr-eCare.

His current interests include comparative effectiveness research and single nucleotide polymorphisms in personalized medicine. He holds a BS in chemistry from Stanford and a PhD in chemical physics from Harvard.

Wednesday, May 27, 2009

These days, I enjoy blogging because there’s a lot going on. First, the global economy is in a tailspin which only recently has been showing signs of pulling out. Next, the financial services industry which holds the global economy together is under strains not seem since the Great Depression while causing the US’s dominant global financial position to be called into question. Finally, potentially seismic changes in the US healthcare system arising from a new administration in Washington, D.C. and an American public simultaneously becoming increasingly more fearful and angry about the cost of healthcare poses serious challenges to the long, dominant healthcare industry, again, particularly in the US.

With this in mind, I read a recent article in the May 18, 2009 edition of Barron’s written by Neil A. Martin about Medtronic (MDT), the medical device manufacturer. The article is well written and fairly balanced. Neil goes over the issues facing the company and what its chances are going forward. He quotes several analysts who follow the company and who seem favorable. Although, I had a feeling of déjà vu reading their comments. We’ve heard it all before from other commentators for other companies. What’s different this time? We don’t get into the fundamentals. New products are good. But, will there be a risk of more recalls? How will these be paid for? Will patients continue to postpone surgeries judging it elective if they can’t afford it?

My purpose in this blog is not to hammer Medtronic or Neil A. Martin. What I’m about is how the fundamental issues seem to be being missed here. The financial industry is looking at healthcare companies like it has for years. Like it used to look at the US automobile industry for years. The proverbial ostrich with its head in the sand.

I want to go back to one of my recurring themes, the overcapacity in the US healthcare industry. Martin’s article contains a chart listing Medtronic with its major competitors, St. Jude Medical (STJ), Boston Scientific (BSX), Johnson & Johnson (JNJ), and Abbott Laboratories (ABT). I’ve blogged about the latter earlier this year. I think enough has already been said about the long suffering Boston Scientific. And, the remaining two go about their business. This is my point.

If I stick my neck out and forecast President Obama being reelected in 2012 then the world we’ll all inhabit when he finally leaves office in 2017 will be very different than the one we live in today. It has to be. The economic and social problems that we’re currently experiencing will only get worse with outside help (OK, OK, I’m really not a laissez-faire kind of guy, so, sue me). Also, I tend to be an optimist, things will get better. So, today’s players need to change, or, they will be changed. Now, the question is what will those changes be? Stay tuned, Larry and I hope to explore those changes.

As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.

Tuesday, May 26, 2009

Lately, I’ve been wondering about where we are in the economy and its long expected recovery. We all know it’s going to come back, it’s just a matter of when. Big Pharma has more reason than most to wonder when the turnaround will occur. For them, the question is do they get their legs under them before the Obama administration pulls the carpet again.

As I’ve been noting in the business press there appear to be signs of continual slowing down for Big Pharma. The most recent indicator was in the May 25, 2009 issue of Barron’s. The staff writer, Michael Santoli penned a piece on Thermo Fisher Scientific (TMO), a leading manufacturer of laboratory equipment and supplies. While reviewing the economy’s negative impact on Thermo Fischer’s operating results, he noted that the consolidation underway in the pharmaceutical industry could reduce spending for research materials. Although, he didn’t expect this to be a major consideration for Thermo Fischer. But, this got me thinking. If the drug companies are cutting back on their expendables what’s going on? Yes, one reason for these mergers is to leverage purchasing power and unnecessary facilities. But, I doubt that all of these research and development programs are pursuing the same drugs. Are we beginning to see the long heralded cutback in pure research by pharmaceutical companies?

Another article that I came across recently in this same vein was in the May 25, 2009 issue of BusinessWeek. In Michael Mandel’s column, Mandel on Economics, he writes about the increasing productivity being experienced by US industry which could negatively affect future growth. One statistic caught my attention. Michael (beats me why all these guys are called Michael) noted an 11% decrease in research and development at Johnson & Johnson (JNJ).

Now, when I think about Big Pharma’s pipeline problems, I see what I think are coincidental indicators of cutbacks in new drug development. If they’re buying fewer research supplies and cutting back in professional staffs as Mandel implied in his article, then what is the future for these companies? How much overcapacity is there in the industry?

Larry and I have blogged about this theme before and drawn parallels with Big Auto. Now, today, this may seem a bit extreme. But, how long ago were General Motors (GM), Chrysler, and Ford (F) considered viable investments? For that matter, anyone remember American Motors Corporation?

We would be interested in hearing from our readers about what coincidental indicators they are seeing in the healthcare industry or which ones we should be watching. We’ll follow up on these in future blogs.

As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.